Investing in Mutual Funds comes with a lot of myths which always buzzes around Investors. Let us look at some of the Myths & Counter them down with reality.
1) Mutual Funds Require a Demat Account for Investing
This is a real myth First Investors have, all of them think that they require a Demat Account for Investing in Funds. You can invest without a Demat Account
If you have a Demat Account you can hold all units in electronic form through your Demat Account. But it is not necessary.
If you want to open Demat Account for free Click Here.
2) Mutual Funds are Complex
Unlike what most people think Mutual Funds are Complex & require heavy Market & financial knowledge for Investing. This myth is however far away from Reality.
Investors who don’t have any Market knowledge can Invest Because already there is a team of Expert People who are handling your money for a fee. You can leave the hard work of Market Research to them.
3) Mutual Funds are only for Rich People
Mutual Funds are Only Made for Rich People who can invest a huge sum of money. This is completely absurd and makes no sense.
Anyone who wishes to invest can invest without any Income or any other barrier. You Only need some basic documents such as PAN, Aadhar and a Bank Account to invest.
4) You need at least Rs.1 Lakh to Invest in Mutual Funds
One fine day I told one of my friend to Start Investing in Mutual Funds, then he told me that he doesn’t have 1 lakh rupees to Invest.
So I asked him who told him that one requires 1 lakh rupees to Invest, he told that his neighbour (Who has never Invested)told him that.
Let’s Break Another myth, You can Start Investing with as low as Rs.500/- per month. There are no Criteria of 1 Lakh Rupees to invest, this is just a myth which has been brought by people who have never invested.
5) Mutual Funds are for Long Term
Many People Don’t Invest Because they think Funds are for Long Term only. This is true to a certain extent, that when you hold Funds for a Longer Term you get better returns.
But this is not true for all Funds, there are funds in which you can invest for 3 Days, 1 Week etc.
6) Mutual Funds give guaranteed returns
Another myth which a lot of Existing Investors have is that Mutual Funds give guaranteed returns of 12% or 15%. Mutual Funds can never give guaranteed returns.
Funds are Market Linked Products as their returns are dependent on Returns of Stocks in which they are Investing. They can give negative returns for 1 Year & give a 40% return the next year depending upon market conditions.
7) Lower NAV Schemes give Better Returns
I personally know a lot of people who Invest in Certain Schemes who have lower NAV, because they think that lower the NAV higher the return.
Return is not dependent on the price of its NAV. Returns are dependent on factors such as Market Conditions, Quality of Stocks, Turnover Ratio etc.
8) Buying Funds who have 5 Star Rating
Many Investors Buy Certain Funds Because of they have 5 Star Rating on these Agencies / Review Sites. This is a Wrong Approach towards Investing.
You Should look at Factors such as Stocks Invested, Fund Managers, Past Returns, How Long Since the fund is actively managed, AUM etc.
Thank You for Reading if you have encountered any Such myth do let us know in the Comments section below.